Generally Accepted Accounting Principles (GAAP) recognize three different types of inventory: raw materials, work-in-process and finished goods. Not every type of business carries all three types of inventory; retailers, for example, generally deal solely with finished-goods inventory, while manufacturers most often carry all three. The process of determining the value of inventory on hand depends on the types of inventory you carry and the inventory-costing method you have chosen.

1. Choose an inventory costing method in the start-up stage of your business, and stick to this method as long as it is feasible. Costing methods influence the way in which accounts recognize cost-of-goods-sold expenses, which in turn affects the value of inventory remaining on hand. Choose among the first-in-first-out, last-in-last-out, weighted average or specific identification methods and recognize costs in a consistent manner to maintain reliable records.

2. Determine the balance of raw-materials inventory if you are in the manufacturing industry. Raw-materials inventory consists of things like steel, wood, silicon and plastic, which will become component parts of finished products. Find the ending balance of raw-materials inventory from the previous period. Add the value of any raw-materials purchases made during the period. Then subtract the value of raw materials used during the period to determine the value of raw materials on hand. Perform a physical audit of your raw materials, if possible, to check your numbers.

3. Calculate the balance of work-in-process inventory. Work-in-process inventory consists of raw materials on which work has begun but has not yet been completed at the time of your calculation. Calculating work-in-process inventory can be a bit more tricky than the other two types. First, perform a physical count of units on which work has begun but has not been completed. Consult production managers to determine the completion percentage of each unfinished inventory item. Multiply each unfinished unit by its completion percentage; then add up all of the results to arrive at a number of equivalent units in process. Multiply the number of equivalent units on hand by the value you would assign to finished-goods inventory -- including direct costs and any allocated overhead -- to determine the balance of work-in-process inventory.

4. Determine the amount of finished-goods inventory on hand. As with raw materials, begin with the previous period's ending balance of finished goods. Add the value of finished-goods inventory produced during the period, which should be available in your production-output records. Then subtract the cost of goods sold during the period to determine the value of finished goods remaining.

5. Add the balances of all three inventory types to determine a total inventory value for the period. When presenting inventory data, list each subtotal under this total inventory value.

About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.